If you think most of the people who take out these loans pay them back in full after one month, think again online payday loans California. Because of the high interest and the fact that these lenders cater to low-income borrowers, many people aren’t able to pay back their loans in the 30-day period.
The terms of these loans are crafted to keep borrowers in a cycle of debt and bring customers either to the verge of repossession or to actual repossession. Not being able pay off the initial loan and then renewing it the next month costs borrowers even more money in interest, on top of the original amount they’ve already borrowed.
Let’s talk about repossession for minute. Some companies started the cars to see if they worked and took pictures of the vehicle even before a customer filled out the loan application.
A company based in Arizona said they have GPS systems installed on the cars so they can track the cars and shut them off remotely if they don’t receive payment on time. That may be an extreme case, but these lenders take a customer’s promissory signature very seriously. If you can’t pay, they will come looking for you and your car.
The concerns for having your car repossessed are obvious. How do you get to work, drop off the kids at school, pick up groceries or go out on the weekends without a car? As if those scenarios weren’t bad enough, owning a car can be some people’s biggest financial asset. If the car is taken away, so goes the money it was worth.
The CFA reported that, of the people they interviewed in their 2004 study, 75 percent had to give the title loan lenders a copy of their car keys
Some states have laws that force the lenders to pay you the difference of the loan once a lender has repossessed and sold your car, but some don’t. It is possible to default on the loan and not get any money back for your car, even if you only borrowed a few hundred dollars.
This occurs because car title loans are also over-secured. Typically, the maximum amount most lenders will give you is 25 to 50 percent of what your car is actually worth. However, if you can’t pay back the loan they may be able to sell your car and keep 100% of the profit.
Some lenders won’t take possession of a vehicle but instead take the customer to court for the money. They then tack on court costs and finance charges on top of the existing loan amount.
Although this may be partly true, signing over one of your most valuable assets for several hundred dollars is not the only option.
Some credit unions, like in North Carolina, have begun providing loans that have low interest rates of about 12 percent APR, a fixed 31-day repayment plan (to keep from rolling over a loan) and set up direct deposit out of the borrower’s paycheck so that loans will be paid off in full.
Many car title loan lenders defend their business practices by saying they offer loans to people who would otherwise not be able to gain financial assistance
These types of payments are called “balloon payments” where the borrower pays the interest of the loan each month and at the end of the term they still owe the full amount of the loan. The CFA reported that one woman paid $400 a month for seven months on an interest-only payment term for a $3,000 loan. After paying $2,800 in interest, she still owed the original $3,000 in the eighth month.